Lesson 7 Flashcards
What are the six major categories of intangibles?
- Marketing-related
- Customer-related
- Artistic-related
- Contract-related
- Technology-related
- Goodwill
What are examples of marketing-related intangibles?
trademarks or trade names, newspaper mastheads, internet domain names, and noncompetition agreements.
What is a trademark or trade name?
It is a word, phrase, or symbol that distinguishes or identifies a particular company or product. Which can have an indefinite life and does not amortize its cost.
What are examples of customer-related intangibles?
customer lists, order or production backlogs, contractual and non contractual customer relationships. which has a limited life and amortized.
What are examples of artistic-related intangibles?
ownership rights to plays, literary works, musical works, pictures, photographs, and video and audiovisual material. Copyrights.
What is a copyright?
It is a federally granted right that all authors, painters, musicians. sculptors, and other artists have their creations and expressions. They are not renewable.
What are examples of contract related intangibles?
franchise and licensing agreements, construction permits, broadcast rights, and service and supply contracts.
What is a franchise?
it is a contractual arrangement under which the franchisor grants the franchisee the right to sell certain products or services, to use certain trademarks, or to perform certain functions.
What are examples of a technology related intangible?
patented technology, and trade secrets
What is a patent?
Gives the holder exclusive rites to use, manufacture, and sell a product or process for a period of 20 years without interference or infringement by others.
What is a product patent?
It covers actual physical products
What is a process patent?
It governs the process of making products.
Tiburon Corporation purchased a patent for $1,850,000 on November 30, 2018. It has a remaining legal life of 18 years. Tiburon estimates that the remaining useful life of the patent is 15 years. What balance will be reported on the December 31, 2020 balance sheet for the patent (if necessary, round your answer to the nearest dollar)?
$1,593,056
Patents are amortized using the straight-line method over the shorter of the useful life and the legal life of the asset. On December 31, 2020, the asset would be amortized for 25 months [1 month in 2018 + 12 months in 2019 + 12 months in 2020]. $1,850,000 / 180 months = monthly amortization of $10,277.78 x 25 months = $256,944.50 total amortization expense. The book value at December 31, 2020 is $1,593,056 ($1,850,000 - $256,944.50).
On July 1, 2020, Adele Company bought a trademark from Robert, Inc. for $2,750,000. An independent research company estimated that the remaining useful life of the trademark was 10 years. Its unamortized cost on Robert’s books was $1,600,000. In Adele’s 2020 income statement, what amount should be reported as amortization expense?
$137,500
Intangible assets are amortized using the straight-line method over the useful life of the asset. The seller’s book value is ignored. $2,750,000 / 10 years = $275,000/year x 1/2 year = $137,500.
